‘Superstar firms’ could drive corporation tax take to €20bn this year

The State could collect €20 billion in corporation tax in 2022, €13 billion more than it did in 2015 and €5 billion more than last year, a new report by the Department of Finance has found.

However, the analysis suggests the “concentration” of these receipts within a small number of multinational companies — with more than half coming from just 10 “large players” or “superstar firms” — represents a “major ... risk” with the potential to create a “fiscal hole”.

Launching the report on Thursday, Minister for Finance Paschal Donohoe said the figures indicate that €1 in every €8 of all tax collected by the State is directly sourced from these 10 companies. He said that in the medium term, “the risk [to the exchequer] could be in the spectrum of €4 billion-€6 billion”. This, the report highlights, is because the main global factors driving this sizeable jump in the Republic’s corporation tax take over recent years could prove to be temporary.

These receipts could be vulnerable to alterations to global corporation tax rules as well as changing consumer and business trends, the report suggests.

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“A notable feature of the global economy more than the past decade or so has been the emergence and growth of so-called ‘superstar firms’”, the report notes.

“With some of these locating in Ireland, firm-specific volatility can play an outsize role in overall economic activity. One recent domestic example is that of the ‘patent cliff’ in the pharmaceutical sector in 2012″, a period in which major drug companies lost exclusive rights to many billion-dollar-selling drugs, leading to a fall-off in the industry’s taxable profits.

“Churn” within the tech sector — to which Ireland’s corporation tax take is particularly exposed — represents another risk, according to the report. “The pace at which technology is changing means that some firms or products may seem viable today but could be redundant in the near future”, threatening the taxable revenues of tech companies.

“The key message that flows from today’s publication is that a reliance on volatile sources of income to fund permanent increases in public expenditure is a potential blind-spot for the public finances,” Mr Donohoe said.

“In my view, there is a strong argument to treat a portion of corporation tax receipts as volatile in nature. In doing so, we can address a key risk to the public finances and thereby help ensure our country’s fiscal sustainability,” he added.

Asked how much of the €20 billion the State is expected to collect in corporation tax revenues this year will be spent on cost-of-living measures in Budget 2023, the Minister said those discussions are still happening within Government. He said that in the past, governments had sought to offset the risk by setting aside money in the National Pension Reserve Fund or the so-called rainy-day fund established before the pandemic.

However, the Minister said that it has not been decided what proportion of this year’s corporation tax take would be set aside. “I’m not going to prejudge what Government decides in relation to this,” he said.

“It is a matter for governments, party leaders, myself and Minister [for Public Expenditure Michael] McGrath to work through.”